Managers at a key Defense Department oversight agency threatened a senior auditor with personnel action if he did not remove negative findings from a report criticizing a large federal contractor, according to a new report published Wednesday by a government watchdog.

The scathing report by the Government Accountability Office found a too-cozy relationship between management at the Defense Contract Audit Agency and some of the contractors they are assigned to audit. GAO also said auditors who complied with the investigation were subject to harassment and intimidation from their supervisors.

GAO "found that contractor officials and the DoD contracting community improperly influenced the audit scope, conclusions and opinions of some audits -- a serious independence issue."

In response to the report DCAA acknowledged that there were shortcomings with some internal controls, but it did not agree with the totality of the report.

"DCAA has taken prompt and immediate action to correct the issues and is committed to promptly addressing any remaining significant issues identified by the GAO," wrote Kenneth Saccoccia, DCAA assistant director of policy and plans directorate. "We believe that the three field audit offices at issue are currently operating at a satisfactory level."

The report found that DCAA officials in 2002 made an upfront agreement with a major aerospace company to limit the scope of its work and the basis for its audit opinion.

But even with the agreement, auditors found that the contractor -- who was not named in the report and identified only as "one of the top five government contractors based on contract dollar value" -- still could not produce valid compliance estimates. The auditor eventually issued a draft finding of inadequate.

The contractor, however, objected to the findings, prompting DCAA management to assign a new supervisory auditor to the case, according to the report. Faced with the threat of personnel action if he did not change the draft report, the auditor reportedly changed the findings to adequate.

The Defense Contract Audit Agency said it has no evidence that the supervisors willfully removed findings from audit reports.

DCAA employees also reportedly faced pressure from supervisors not to comply with GAO's investigation. The report noted that "managers took actions against their staff at two locations, attempting to intimidate auditors, discouraging them from speaking with our investigators, and creating a generally abusive work environment." As a result, some auditors were hesitant to speak with GAO investigators, even on a confidential basis.

The report found one instance in which high-level DCAA officials pressured auditors, including trainees on probationary status, to disclose what they had told GAO investigators.

"Further, we learned of verbal admonishments, reassignments and threats of disciplinary action against auditors," the report stated.

Saccoccia said he found no evidence of such intimidation and argued that GAO provided no evidence to back up its conclusions.

GAO launched its investigation after receiving hot-line complaints about 14 DCAA audits at two California locations.

Problems also were found at a third DCAA location that is responsible for auditing five of the largest government contractors. GAO said inexperienced trainees at this site were assigned to at least 18 complex audits, often as their first assignments and without proper supervision.

Investigators also discovered that in each of the 14 audits, DCAA staff could not support their own draft conclusions. Supervisors, meanwhile, failed to instruct or allow auditors to perform additional work before issuing final reports, GAO concluded.

For example, the GAO found that the draft report for a 2005 billing system audit had at least six major deficiencies, one of which allowed the contractor -- indentified as a company that builds and supports military and satellite systems -- to overbill the government by $246,000. Another mistake may have led to $3.5 million in overbillings, the report said.

"DCAA managers replaced the supervisory auditor and auditor, and the new staff worked together to modify working papers and change the draft audit opinion from 'inadequate,' to 'inadequate in part,' and, finally, to 'adequate,' " the report said. "Sufficient testing was not documented to support this opinion. DoD [Inspector General] concluded that DCAA should rescind the final report for this audit, but DCAA did not do so."

On another occasion, a DCAA supervisory auditor directed a member of her staff to write a clean opinion report using boilerplate language without reviewing the documents prepared by the original auditor, the report noted. GAO found multiple problems with that audit.

Are you a current or former DCAA employee who was pressured by a supervisor to change the results of an audit to favor a contractor? Have you been threatened with personnel action or told to limit the scope of your work at the behest of a DCAA manager? Government Executive wants to hear your story. Identities will be protected. Please contact Robert Brodsky at rbrodsky@govexec.com.

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